1. Agricultural Marketing
ECON 337:
Agricultural Marketing
Lee Schulz
Assistant Professor
Chad Hart
Associate Professor 1

2. Factors Affecting Feeder Cattle Prices

3. What exactly does “right” mean?
Marketability: Buy and sell them “right”…
What exactly does “right” mean?
Buy low – sell high make lots of money!
As a seller, know what your buyers are looking for and strive to deliver it to them
As a buyer, recognize how the various traits and characteristics are valued and buy what best fits your program (i.e., your comparative advantage)
(of course this doesn’t work for everybody as some are buying from those selling)

4. What drives/determines feeder cattle prices…4

5. Feedlot Operators ― How important are the following traits for the feeder cattle that you buy?
Schulz, L.L., P.J. Gunn, and D.L. Loy A 2014 Survey of Iowa Feedlot Operators. ISUEO. IBC 101B.

6. Breed impacts price…
Source: CAB “Where’s the Premium” study,
-- Consistent premium on Angus-influence calves and premium has generally been trending up over this time period 6

7. Color is a proxy for breed/genetics…
Source: Schulz, L.L., K.C. Dhuyvetter, and B.E. Doran “Factors Affecting Preconditioned Calf Price Premiums: Does Potential Buyer Competition and Seller Reputation Matter?” JARE 40(2): 7

8. Weight impacts price… -$16.94/cwt -$4.13/cwt
Prices decrease at a declining rate as weight increases (convex shape)
-- Growth potential of cattle is most rapidly used up at lighter weights than heavier weights
-$16.94/cwt
-$4.13/cwt

9. Corn price impacts weight price relationship…
“Low” CN: FC price ↓ more rapidly as weight ↑
Lightweight feeders worth more relative to
heavy feeders because COG lower

10. Live cattle price impacts weight-price relationship…
“Low” LC: FC price ↓ less rapidly as weight ↑
Lightweight feeders worth less relative to
heavy feeders

11. Expected Slaughter Cattle Price
Deferred fed cattle futures
What feeders will be worth when finished
Current slaughter cattle price may not matter much
Affects derived demand for feeder cattle
Higher slaughter cattle prices – feedlots can pay more for feeder cattle
Lower slaughter cattle prices – feedlots must pay less for feeder cattle
Recent work – close to 1:1 relationship

12. Weight (with season) impacts price…
Source: Holton Livestock Exchange, Inc. (Northeast Kansas)

13. Weight (with season) impacts price…
Differences in feeder cattle prices across weights, attributed to:
1. Feeding performance
2. Profitability of feeding programs
Seasonal difference in weight discounts, accounted for by:
Larger weight discounts in the spring
Strong demand for lighter weight cattle for placement on spring pastures
During the fall, demand is stronger for feedlot cattle
Heavier animals are preferred
Seasonal variations in feeder cattle supply contributes to differing weight discounts

14. Weight (with gender, preconditioned) impacts price…
-- Advantage of preconditioned calves declines at heavier weights
-- For heifers the premium on preconditioned calves is higher
Source: Schulz, L.L., K.C. Dhuyvetter, and B.E. Doran “Factors Affecting Preconditioned Calf Price Premiums: Does Potential Buyer Competition and Seller Reputation Matter?” Journal of Agricultural and Resource Economics 40(2):

15. Lotsize impacts price…
Source: CAB “Where’s the Premium” study,

16. Several other factors impact price…
Feeder Cattle Trait,
Regular & PC
PC Sales
Gender
Steer
Base
Heifer
-$14.538
-$12.611
Frame
Medium Frame
Medium and Large
$5.086
$5.095
Grade
Muscle 1
Muscle 1-2
-$7.022
-$3.852
Health
Healthy
Not Healthy
-$11.937
Sale Order
Qtr1
Qtr2
-$0.571
Qtr3
-$0.402
Qtr4
-$0.026
Other
Sale quantity (per 1,000)
$1.100
$2.000
Feeder cattle futures ($/cwt)
$1.097
$1.170
Diesel price (10 cents/gal)
-$0.200
-$0.240
Source: Schulz, L.L., K.C. Dhuyvetter, and B.E. Doran

17. What about preconditioning calves…
Premiums consistent across location, exceptions (Regular Sale 4 & 5)
Premiums for PC heifers significantly higher than for steers
Preconditioned heifers purchased as herd replacements
Source: Schulz, L.L., K.C. Dhuyvetter, and B.E. Doran “Factors Affecting Preconditioned Calf Price Premiums: Does Potential Buyer Competition and Seller Reputation Matter?” JARE 40(2):

18. What about preconditioning calves…
Average premiums for PC calves increasing over time (exception 2012–13)
Premium $1.71 to $7.44/cwt for steers and $6.03 to $11.76/cwt for heifers
Source: Schulz, L.L., K.C. Dhuyvetter, and B.E. Doran “Factors Affecting Preconditioned Calf Price Premiums: Does Potential Buyer Competition and Seller Reputation Matter?” JARE 40(2):

19. What about preconditioning calves…
Premiums greater for lighter weight calves sold earlier in the market year
Prices for heavier calves sold in Feb equal (i.e., no premium for PC sale)
Somewhat “preconditioned” already
Past weaning stress period and bunk adjusted
Source: Schulz, L.L., K.C. Dhuyvetter, and B.E. Doran “Factors Affecting Preconditioned Calf Price Premiums: Does Potential Buyer Competition and Seller Reputation Matter?” JARE 40(2):

20. What about seller (reputation) affect…
21% of lots received statistically different prices
Range $20/cwt (+$9.70/cwt to -$9.93/cwt)
Implication: Some producers will incur more costs (PC) and may not receive any premiums. Some producers  may receive even higher premiums.
Source: Schulz, L.L., K.C. Dhuyvetter, and B.E. Doran “Factors Affecting Preconditioned Calf Price Premiums: Does Potential Buyer Competition and Seller Reputation Matter?” JARE 40(2):

21. Class web site: